Building depreciation

$200,000/yr.

Machine operators

$100,000/yr.

Management staff

$400,000/yr.

Direct materials

$4,000,000/yr.

Other expenses that seem to vary based on production levels

$3,000,000/yr.

Other expenses that don't seem to vary

$1,300,000/yr.

Selling price per unit

$5,000/unit

Utilities:

This category is difficult to analyse; a part of it is related to the building's heat and light, whereas a part of it is used in the manufacturing process itself. You have the following data to which you will apply the high-low method:

• When there is no production, utility costs are $20,000/month
• When production levels reached 4,000 units/month, utility costs totalled $40,000/month

Grading Rubric

Which of the 8 cost categories would be considered variable, and why?

Which of the 8 cost categories would be considered fixed, and why?

Which costs would be considered semi-variable, mixed, or semi-fixed?

Ignoring utility costs altogether, what is the contribution margin per unit, in dollars and in percentage?

Ignoring utility costs altogether, what is the breakeven level of sales?

Ignoring utility costs altogether, if instead of breaking even, the firm wants to make $10,000/month profit, answer the following:

:How many units must be sold each month?

:To how many sales dollars is this unit volume equivalent?

In year 2, ignoring utility costs altogether, how many additional units must be sold just to pay for this added $300,000/yr. expense in added administrative salaried headcount?

How many dollars of the utility bill are fixed? What is the variable cost per unit of utilities?